MR. JIGAR PRATAPRAY VORA,MUMBAI vs. DCIT, CIRCLE 33(2), MUMBAI

Per: SHRI JAGADISH, A.M.:

“1. That on the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals), NFAC, Delhi ("Learned CIT (A)") has erred in upholding the reopening of assessment under section 147 of the Act, which is bad in law, illegal and void ab initio, as the same is based on borrowed satisfaction from the investigating wing without any independent application of mind by the assessing officer and without any tangible material coming to the possession of the assessing officer.

That the learned CIT (A) erred in confirm the addition of loan of Rs.92,00,000/- from Frontline Diamond Private Limited under section 68, although the appellant has not taken any such loan from the said entity. The learned CIT(A) failed to adjudicate the said issue taken in the additional grounds.

(a) Dev Darshan Diamonds Private Limited Rs. 80,00,000/- (b) Sugam Exim Private Limited Rs. 60,00,000/- (c) Rajat Daimond Private Limited Rs.1,75,00,000/-

(ii) That the learned CIT(A) failed to appreciate the evidences furnished to prove the genuineness of the loan taken from the above three entities.

(iii) The learned CIT(A) has erred in sustaining the addition without confronting the appellant with any adverse material, or without providing sufficient and reasonable opportunity of cross examination of the loan parties or to rebut adverse inference drawn.

(iv) That the learned CIT(A) has erred in sustaining the addition without considering substantial evidences furnished by the Appellant which clearly establishes the identity, creditworthiness of the lenders and genuineness of the transactions without bringing (on record any adverse materials.

(v) That the learned CIT(A) has erred in sustaining the addition merely on the surmises, suspicion and conjecture without bringing any cogent material or evidence to show that the impugned credit represented unexplained income of the appellant.

(vi) That the learned CIT(A) failed to appreciate that the appellant has discharged the initial onus under section 68 and erred in not considering and adjudicating upon the detail submissions, supporting evidence additional grounds of appeal and binding judicial precedents placed on record by the Appellant. The impugned order is thus, non-speaking, perverse and bad in law being in violation of the mandate of section 250(6) of the Act as well as settled principle of natural justice.

“5.4. Discussion and Findings:

Ground 1: Validity of Reopening under Section 147:

The appellant contends that the reopening of the assessment was invalid, alleging it was based on borrowed satisfaction from the Investigation Wing's report without tangible material.

This contention is untenable. The AO recorded reasons for reopening based on specific information from the Investigation Wing, which revealed that the appellant obtained Rs. 4,07,00,000 as unsecured loans from entities, identified as accommodation entry providers. The survey under Section 133A on 24.03.2017 at the JPV Group's premises provided credible evidence of bogus transactions, including ledger details and statements from related parties admitting to providing non-genuine entries.

The AO obtained approval from the Principal Commissioner of Income Tax under Section 151(1), as required for reopening beyond four years from the end of the assessment year. The Hon'ble Supreme Court in CIT vs. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC) held that reopening is permissible if there is tangible material to believe that income has escaped assessment. Here, the Investigation Wing's findings constitute such material. The appellant's failure to disclose the true nature of these transactions in the original return further justifies the reopening, as it amounts to a failure to disclose all material facts fully and truly, as required under the proviso to Section 147. The reasons were communicated to the appellant vide letter dated 14.10.2019, and no objections were raised, as noted by the AO. Thus, the reopening is valid and in accordance with GKN Driveshafts (India) Ltd. vs. ITO (2003) 259 ITR 19 (SC).

Ground 2: Additions under Section 68:

The appellant argues that the AO erred in treating the unsecured loans of Rs. 4,07,00,000 as unexplained cash credits under Section 68, claiming it provided loan confirmations, bank statements, and ITR acknowledgments. This argument lacks merit. Section 68 mandates that any sum credited in the books of accounts, for which the assessee offers no satisfactory explanation regarding the nature and source, be treated as unexplained income. The burden lies on the assessee to establish the identity, creditworthiness, and genuineness of the transactions.

The Hon'ble Delhi High Court in CIT vs. NR Portfolio Pvt. Ltd. (2011) emphasized that merely producing PAN or ITR acknowledgments does not suffice; the assessee must demonstrate that the creditor is engaged in genuine business and has the financial capacity to lend. The appellant submitted loan confirmations and bank statements but failed to produce the creditors for examination despite multiple opportunities (notices dated 21.09.2019, 01.11.2019, and 11.11.2019). Only two creditors, Rajat Diamond Exim Pvt. Ltd. and Dev Darshan Diamond Pvt. Ltd., responded to Section 133(6) notices, providing ITR acknowledgments with meager incomes of Rs. 3,57,990 and Rs. 50,580, respectively, which do not establish their capacity to lend sums of Rs. 1,75,00,000 and Rs. 80,00,000. The remaining creditors either did not respond or were untraceable, raising doubts about their existence.

The bank statements of Rajat Diamond and Dev Darshan revealed high-volume transactions with negligible profits, consistent with the Investigation Wing's findings that these entities were paper companies engaged in providing accommodation entries. The appellant's claim that these were genuine diamond trading businesses is unsubstantiated, as no evidence of actual business operations (e.g., sales invoices, client contracts) was provided. The Hon'ble Supreme Court in Durga Prasad More vs. CIT (1971) 82 ITR 540 (SC) held that courts must consider the substance of transactions over their form, applying the test of human probabilities. The appellant's failure to produce creditors or provide comprehensive financials fails this test.

The appellant's reliance on cases like CIT vs. Lovely Exports Pvt. Ltd. (2008) 216 CTR 3 195 (SC) is misplaced, as that case involved share application money with documented identities, unlike the present case where creditors are untraceable or lack financial capacity. The Hon'ble ITAT Ahmedabad in Pawan kumar M. Sanghvi vs. ITO held that genuineness must be evaluated in light of prevailing ground realities, particularly when shell entities are involved. The appellant's documentation is superficial and does not discharge the onus under Section 68.

Ground 3: Disallowance of Interest under Section 69C:

The appellant contends that the interest expenditure of Rs. 8,76,289 was wrongly disallowed, as the loans were genuine. Since the loans have been held to be non- genuine and added under Section 68, the interest paid thereon cannot be allowed as a legitimate business expense.

Section 69C provides that expenditure for which no satisfactory explanation is offered be treated as unexplained. The appellant's failure to establish the genuineness of the loans extends to the interest payments, which are part of the same accommodation entry scheme. Thus, the disallowance is justified.

Ground 4: Reliance on Investigation Wing's Findings and Broker's Statement:

The appellant argues that the AO's reliance on the Investigation Wing's findings and Mr. Chaplot's statement was unjustified, as no opportunity for cross-examination was provided.

This contention is not sustainable. The Investigation Wing's survey under Section 133A revealed that the JPV Group, including the appellant, engaged in transactions with entities known for providing accommodation entries. The findings were based on ledger details, bank statements, and admissions by directors/proprietors of the Gautam Jain group, who confessed to providing non-genuine entries. These findings were corroborated by the AO's independent inquiries, including unserved notices and incomplete responses from creditors.

Regarding Mr. Chaplot's statement, the appellant was informed of its contents in the show cause notice dated 11.11.2019 and was asked to produce the creditors for examination. The appellant neither requested cross-examination nor produced the creditors, despite providing their updated addresses. The Hon'ble Supreme Court in Andaman Timber Industries vs. CCE (2015) 281 CTR 241 (SC) held that cross- examination is not mandatory unless specifically requested by the assessee. The appellant's inaction in this regard undermines its claim of procedural unfairness.

Ground 5: Initiation of Penalty Proceedings:

The appellant challenges the initiation of penalty proceedings under Section 271(1)(c), arguing no concealment occurred.

This ground is premature, as the penalty order has not been passed, and the present appeal concerns only the quantum additions. However, for completeness, it is noted that the appellant's failure to substantiate the loans and interest payments, despite ample opportunities, suggests a deliberate attempt to introduce unaccounted funds under the guise of loans. The initiation of penalty proceedings is prima facie justified, subject to the penalty proceedings' outcome.

5.5. Conclusion:

The appellant's annexures, including loan confirmations, bank statements, and partial ITRs, do not discharge the onus under Section 68 to prove the identity, creditworthiness, and genuineness of the loan transactions. The Investigation Wing's findings, corroborated by the AO's inquiries, establish that the five creditors were paper entities engaged in providing accommodation entries. The appellant's failure to produce creditors, coupled with the untraceability of some and the meagre financials of others, supports the AO's conclusion that the loans of Rs. 4,07,00,000 and interest of Rs. 8,76,289 were non-genuine.

The reopening under Section 147 was valid, based on tangible material from the Investigation Wing. The appellant's reliance on judicial precedents is misplaced, as the facts of this case align with decisions like CIT vs. NR Portfolio Pvt. Ltd. and Pawankumar M. Sanghvi vs. ITO, emphasizing the need for substantive evidence. The principles laid down in Sumati Dayal vs. CIT (1995) 214 ITR 801 (SC) and Juggilal Kamlapat vs. CIT (1969) 73 ITR 702 (SC) further justify looking beyond superficial documentation to uncover the economic reality.

In view of the above, the assessment order dated 13.12.2019 is upheld. The additions of Rs. 4,07,00,000 under Section 68 and Rs. 8,76,289 under Section 69C are confirmed, and the total income assessed at Rs. 4,15,76,290 stands.

In result, the appeal is DISMISSED”

There is no unsecured loan from Frontline Diamond Private Limited in Financial Year 2011-2012 relevant to Assessment Year 2012-2013 as alleged by AO. There is no such entity in the books of Assessee in Financial Year 2011-2012. Hence, the Additions of Rs.92,00,000/- made by AO are completely devoid of facts.

a. The learned Assessing Officer has made addition with respect to the loan taken from Creative Diamond Pvt. Ltd., Dev Darshan Diamond Pvt. Ltd., Sugam Exim Pvt Ltd, Rajat Diamond Exim Pvt. Ltd. merely on the basis of surmises and conjectures despite the Appellant having furnished all details including bank statements of the Appellant, bank statement of the party from whom loan was taken, ledger, loan confirmation, ITR, MCA status, and further, the said loan was also paid back in the immediately next financial year (i.e., short span of time) with interest after deducting TDS thereon. Thereby, the Appellant had discharged the onus to establish the identity of the lender, creditworthiness of the lender and the genuineness of the transaction.

b. Admittedly, the loan was paid back by the Appellant during the year or in the immediately next financial year (i.e., short span of time) with the interest, after deducting TDS thereon.

c. As a consequence to the above issues, the learned Assessing Officer erred in making addition with respect to interest paid on loan.

The learned CIT(A) erred in ignoring and not adjudicating the additional grounds of appeal raised during the appellate proceedings in respect of ignoring the loss of Rs.2,75,05,841/- claimed in the Return of Income filed for the Assessment Year 2012-2013.

Proposition 1 - Legal issue- The reopening of the assessment is bad in law as there is no reason to believe that the income has escaped assessment.

(Ground 1 to 3)

It is pertinent to note that the Appellant is nowhere connected with the alleged JPV group on which survey was conducted. Without even establishing the nexus 10 of the Appellant with the said alleged group, the learned Assessing Officer has without application of mind proceeded to reopen the concluded assessment merely on the basis of reason to suspect as against reasons to believe.

The reassessment proceedings initiated in the present case are bad in law as no tangible material was available with the Assessing Officer for initiating the reassessment proceedings. The proceedings u/s 147 of the Act can be initiated only when the Assessing Officer has 'reason to believe' and this precondition is equally applicable to both the cases, i.e., where return has been processed u/s 143(1) as well as where scrutiny assessment is completed u/s 143(3) of the Act.

From the perusal of the reasons recorded for reopening the assessment, it is evident that no new or tangible material was available with the learned Assessing Officer for initiating the impugned reassessment proceedings. It is pertinent to note that under the provisions of section 147 of the Act, the Assessing Officer can initiate reassessment proceedings only if he has reason to believe that any income chargeable to tax has escaped assessment. The courts have interpreted that the term 'reason to believe' doesn't mean subjective belief of the Assessing Officer and the same should be based on some material which has come to the knowledge of the Assessing Officer before initiating proceedings u/s 147 of the Act.

Non-selection of the case for scrutiny does not in any manner belittle / reduce the significance and meaning of the term 'reason to believe', which is of paramount importance for initiating proceedings u/s 147 of the Act and, as been held in various decisions, reason to believe that income has escaped assessment should be based on some new or tangible material. Such a requirement also rules out the possibility of initiation of reassessment proceedings only on the basis of suspicion without any material being available with the Assessing Officer.

The assumption of the Revenue that somehow the words "reason to believe" have to be understood in a liberal manner where the finality of an intimation u/s 143(1) is sought to be disturbed is erroneous and misconceived. There is no warrant for such an assumption because of the language employed in Section 147; it makes no distinction between an order passed u/s 143(3) and the intimation issued u/s 143(1). Therefore, it is not permissible to adopt different standards while interpreting the words "reason to believe" vis-à-vis Section 143(1) and Section 143(3). It is incomprehensible as to what permits the Revenue to assume that somehow the same rigorous standards which are applicable in the interpretation of the expression when it is applied to the reopening of an assessment earlier made u/s 143(3) cannot apply where only an intimation was issued earlier u/s 143(1). It would in effect place an assessee in whose case the return was processed u/s 143(1) in a more vulnerable position than an assessee in whose case there was a full-fledged scrutiny assessment made u/s 143(3). Whether the return is put to scrutiny or is accepted without demur is not a matter which is within the control of assessee; he has no choice in the matter. The other consequence, which is somewhat graver, would be that the entire rigorous procedure involved in reopening an assessment and the burden of proving valid reasons to believe could be circumvented by first accepting the return u/s 143(1) and thereafter issue notices to reopen the assessment.

Admittedly, the loan was paid back by the Appellant in the immediately next financial year (i.e., short span of time) with the interest, after deducting TDS thereon (page 49, 93, 129 and 141 of PB).

Therefore, the information as referred in the reasons recorded in the reassessment cannot be termed as tangible material to reopen the concluded assessment.

Authorities relied upon by the Appellant before your Honours-

i. Navajbai Ratan Tata Trust vs. ACIT- ITA No.1300/Mum/2018- Para 11 to 14.

ii. Khubchandani Healthparks Pvt. Ltd. vs. ITO 6(3)(4) – WP No. 3027 of 2015 - Bom. HC. Para 5 to 11.

iii. ITO vs. Kayathwal Estate (P.) Ltd [2022] 442 ITR 507 (SC) and [2022] 139 taxmann.com 316 (Guj.) Para 17

Proposition 2 - Merits (Ground 5) -

a. There is no unsecured loan from Frontline Diamond Private Limited in Financial Year 2011-2012 relevant to Assessment Year 2012-2013 as alleged by AO. There is no such entity in the books of Assessee in Financial Year 2011- 2012. Hence, the Additions of Rs.92,00,000/- made by AO are completely devoid of facts.

b. At page 6 of the Paper book, the list of loans taken are enlisted and there is no entry with respect to Frontline Diamond Private Limited. Therefore, the AO seems to have mistakenly made addition with respect to the said party and thus, the addition of Rs. 92,00,000/- deserves to be deleted.

Proposition 3 - Merits (Ground 4, 6 and 7) -

a. The learned Assessing Officer has made addition with respect to the loan taken from Creative Diamond Pvt. Ltd., Dev Darshan Diamond Pvt. Ltd., Sugam Exim Pvt Ltd, Rajat Diamond Exim Pvt. Ltd. merely on the basis of surmises and conjectures despite the Appellant having furnished all details including bank statements of the Appellant, bank statement of the party from whom loan was taken, ledger, loan confirmation, ITR, MCA status, and further, the said loan was also paid back in the immediately next financial year (i.e., short span of time) with interest after deducting TDS thereon. Thereby, the Appellant had discharged the onus to establish the identity of the lender, creditworthiness of the lender and the genuineness of the transaction.

The list of details and documents produced by the Appellant has been detailed out in Annexure - A.

Thus, to prove genuineness of the transaction, the Appellant demonstrated that it has received the loans through banking channel, recorded the same in books of accounts, and also repaid back the same during the financial year or in the immediately next financial year (i.e., short span of time). Further, the Appellant furnished bank statements of the lender and its own bank statement, ROC details, ITR copy of the lender, loan confirmations. To prove the identity and creditworthiness, the Appellant submitted the bank statements of lender company as well as balance sheets.

The loans were repaid by the Appellant in the immediately next financial year (i.e., short span of time), as such lenders were in existence both at the time of acceptance and repayment. To demonstrate the repayment of the loans, the Appellant submitted a chart before the Ld. CIT(A) and the same is annexed at page 47-48 of the PB.

b. As a consequence to the above issues, the learned Assessing Officer erred in making addition with respect to interest paid on loan. The submission of the Appellant on this proposition are connected with the Proposition 2(a) and thus, are consequential. Thus, the Appellant humbly prays that the additions made on account of loans taken and interest thereon be deleted. Proposition 4 - Merits (Ground 8) - The learned CIT(A) erred in ignoring and not adjudicating the additional grounds of appeal raised during the appellate proceedings in respect of ignoring the loss of Rs.2,75,05,841/- claimed in the Return of Income filed for the Assessment Year 2012-2013. The AO at page 10 of the Assessment Order has inadvertently considered that the Appellant has filed NIL as per Return of Income. At page 1 and 2 of PB, it is clearly evident that the Appellant has claimed a loss of Rs.2,75,05,841/-. Therefore, the Appellant humbly prays that the AO be directed to allow the loss as claimed the Return of Income.

We also find that the addition of Rs.92,00,000/- stated to be a loan from Frontline Diamond Pvt. Ltd. in A.Y. 2012-13 is not supported by any corresponding credit in the assessee's books. The assessee specifically drew attention to the list of loans at page 6 of the paper book, in which no account of Frontline Diamond Pvt. Ltd. appears. The Revenue has not identified any entry in the books representing receipt of Rs.92,00,000/- from that concern. Since the existence of a credit in the books is the foundational requirement for section 68, this addition is also unsustainable.

Order pronounced in the open court on 03/08/2026.

Sd/- Sd/- (NARENDER KUMAR CHOUDHRY) (JAGADISH) Judicial Member Accountant Member

Mumbai, Dated: 03/08/2026 Ashwani Rao Sr. Private Secretary Copy of the order forwarded to: 1. Appellant 2. Respondent 3. The CIT 4. The CIT (Appeals) 5. The DR, I.T.A.T. By order

(Assistant Registrar) ITAT, Mumbai